The warning from the Bank's new Financial Policy Committee, created as a new risk watchdog, underlined the ongoing fragility of the banking system.

A statement released following the FPC's meeting on March 16 said: "The Committee remained concerned that capital was not yet at levels that would ensure resilience in the face of prospective risks and noted that the ability to make further progress via greater restraint of cash distributions was limited.

"It therefore advised banks to raise external capital as early as feasible".

The FPC said that banks had gone as far as they could to raise capital by keeping down pay, dividends and share buybacks, and said it would review the situation at its next meeting in June.

The nine-strong committee was established following the decision by George Osborne to hand responsibility for regulation of the financial system to the Bank of England.

It held its first meeting in June last year, and will gain legal powers in 2013 to order banks to take action to improve the stability of the financial system as a whole. As it does not yet have statutory powers, it cannot compel banks to raise capital.

The committee stopped short of calling for powers to be able to dictate maximum loan-to-value or loan-to-income mortgages at this point, saying that more would need to be done to get public backing.

“The Committee did not perceive the public debate necessary to achieve acceptability for such instruments to be sufficiently advanced at present and would welcome further debate,” it said.

The FPC said the matter would be kept under review.

"This is just the first salvo in what is likely to be a long and drawn-out process of establishment for the UK's macroprudential policy regime," said Simon Hayes, economist at Barclays Capital.

Separately the British Bankers Association said mortgage approvals for house purchase slowed to a nine-month low of 33,103 in February, after hitting a two-year high of 37,977 in January.

Economists had forecast 37,250 approvals in February.

"February’s moderation in mortgage activity reinforces our belief that house prices are more likely than not to drift downwards over the coming months in the face of soft economic fundamentals and still relatively low consumer confidence," said Howard Archer, chief economist at IHS Global Insight.

Despite the monthly fall, approvals last month were 9.2pc higher compared with February 2010.

Net mortgage lending fell to £545m from £651m in January, reflecting a weak housing market as well as a desire among homeowners to take advantage of low interest rates to pay off their mortgages.

"Businesses and households continue to be cautious about their finances in the face of difficult economic times and this shows up in an reluctance to take on new credit, or where possible, seeking to pay back bank borrowing," said David Dooks, BBA statistics director.